Investors In State To Recover Nearly $1 Million

July 31, 1991|By STEPHEN M. WILLIAMS; Courant Staff Writer

In the largest settlement it ever has negotiated, the state Department of Banking said Tuesday that a New York brokerage firm has agreed to repay a total of nearly $1 million to Connecticut investors who regulators say were misled about two mutual funds.

First Investors Corp. allegedly failed to fully disclose that the two mutual funds were invested in junk bonds that were below investment grade. The level of risk made the investments unsuitable for certain Connecticut investors, according to the banking department's Securities and Business Investment Division.

The division regulates securities dealers in the state.

As part of the agreement, the company did not admit nor deny any wrongdoing.

State Banking Commisssioner Ralph M. Shulansky said the settlement was the largest ever negotiated by his department.

It requires First Investors to pay $970,600 into a fund to compensate some of the Connecticut residents who invested in the First Investors Fund for Income Inc. and the First Investors High Yield Fund Inc.

Between Nov. 1, 1984 and Nov. 7, 1990, about 10,000 Connecticut residents invested in the two junk bond mutual funds. About half of those investors had losses, a banking department spokesman said.

In some cases, regulators charged, the company's agents misled investors about the risks of the investments.

The agreement also requires First Investors to strengthen its internal controls and procedures and retrain its Connecticut agents in acceptable sales practices.

Ralph Lambiase, director of the Securities and Business Investments Division, said his unit plans to closely monitor those efforts.

Michael Miller, First Investors senior executive officer, said while the company did not admit to any wrongdoing, "We are trying to put the problems behind us, by taking all actions possible and necessary."

The agreement is a "strong indication of our seriousness to now find a way to build for the future," he said.

The company has 36 other mutual funds, and many of them are available in Connecticut, he said.

In addition to the nearly $1 million repayment, First Investors agreed to pay $25,000 to the banking department to cover the cost of its investigation and to pay up to $3,000 for any future costs of a follow-up review by the department during the next 18 months. The company also will pay the department $5,000 to be used in its investor education program.